The Bank of England Governor has issued his harshest rebuke yet to Gordon
Brown, suggesting that the Prime Minister’s plans to cut Britain’s budget
deficit do not go far enough.

In comments which are likely to infuriate Mr Brown, Mervyn King said that the next Government would need to “eliminate a large part of the structural deficit” over one parliamentary term alone. This proposal goes significantly further than anything penned in by the Government in the Budget, or what is demanded by the Fiscal Responsibility Bill unveiled last week in the Queen’s Speech.

In a hearing of the Treasury Select Committee, Mr King said repeatedly that the Government’s plan needed to be “credible” and detailed, or it would lose the confidence of the international investors who buy British debt. He said: “I think [the plan] has to be something where a really significant reduction in the deficit, the elimination of a large part of the structural deficit, takes place over the lifetime of a parliament, which is the period for which a government is elected. Beyond that is a statement of intent and hope rather than a plan for which someone can be held accountable.”

Both Labour and Conservative parties have committed to bringing down the budget deficit in the coming years, with the Organisation for Economic Co-operation and Development warning last week that to do otherwise would leave the UK facing a potential “debt spiral” as investors abandoned the UK. But although neither party has sketched out its detailed prescription of how much this would entail in spending cuts and tax rises, the Tories have indicated they will reduce the deficit by significantly more than the Labour party.

In comments which will further rattle markets, Mr King said that the top-tier rating on Britain’s debt could be at risk if the Government does not go ahead with significant cuts.

He said: “I don’t think there’s any immediate risk [of a downgrade] but of course the longer there isn’t a credible plan that sets out what actions will be taken, the more that is a risk. I myself don’t think that there is any impediment to the UK putting in place a credible plan that will convince financial markets.”

This is arguably the sternest of the numerous warnings the Bank’s Governor has issued to Mr Brown over the size of the deficit. It is the first since Mr Brown announced last week that the Government would draw up legislation forcing it to cut the deficit each year for the next decade and insisting that it halves the budget deficit within four years. Since then, however, official statistics have shown that the Government is still borrowing cash at the rate of almost £3 billion a week.

Mr King admitted, however, that although the budget cuts should be significant, their size should depend on the wider economy starting to recover from the recession.